Senate scraps $100K security deposit

Consistent with their new commitment to help revitalize the local economy, the Senate yesterday set in motion the plan to ease the $100,000 security deposit imposed on foreign investments — a requirement that business leaders insist scare away potential investors.

In their first regular session under the 12th Legislature held on Tinian, senators voted unanimously to amend provisions of Foreign Investment Act to provide leeway to investors in meeting such requirement, other than a cash deposit.

Yesterday’s approval of the proposal followed a two-year effort by the legislative branch to scrap the cash requirement. Although passed by the 11th House of Representatives, the initial bill died down in the Senate due to lack of support.

Offered by Senate Floor Leader Pete P. Reyes, the amendments contained in Senate Bill 12-13 were similar to the House proposal sponsored by Rep. Oscar M. Babauta who was then the chair of the Commerce and Tourism Committee.

The new bill now heads to the lower house for action where it is expected to be approved quickly in view of the vow of House Speaker Benigno R. Fitial to repeal legislation deemed anti-business.

Under SB 12-13, the government will provide flexibility to investors on how they can pay the security deposit as required by the Foreign Investment Act implemented in 1997.

“Added flexibility would provide more opportunities for businessmen to invest significant amounts of money into their business and into the Commonwealth,” according to the measure.

While it noted the security deposit was intended to ensure that potential creditors would have an asset to go after should the business fold up and the investor run away, other forms of collateral can be used to provide such safeguard.

This legislation will allow non-immigrant alien investor on the island to meet the stringent requirement by complying with any of the four alternatives set out by the proposed law in lieu of the $100,000 cash deposit.

Through the new regulations, lawmakers hope the money can be used by investors as additional capital to boost their business stock and serve as an investment incentive.

The private sector, led by the Saipan of Chamber of Commerce, have been urging the Legislature for the past two years to repeal the cash requirement because of their deterrent impact in encouraging entry of foreign investments here.

Its continued presence has underpinned the economic downturn confronting the island since late 1997 as the Asian crisis pulled down the number of investments coming from Japan, Korea and other Southeast Asian countries that were badly hit by the recession.

According to the bill, an investor seeking to set up business here shall provide any of the following collateral instead of posting the $100,000 deposit:

– a first mortgage on real or leasehold property that has appraised value in excess of the amount;

– a bond in the equivalent sum issued by an insurance or other surety company licensed to transact business in the commonwealth, Guam or the United States; and

– a letter of credit or guaranty or other form of regularly recognized commercial instrument drawn from the Federal Deposit Insurance Corporation.